Enbridge Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Amounts are Canadian dollars unless stated otherwise. The interim statements are unaudited and prepared under US GAAP.
Business context and financial results
Enbridge operates liquids pipelines, gas transmission and midstream, gas distribution and storage, renewable power generation, and energy services businesses.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Operating revenue | $10.432bn | $13.215bn | $22.507bn | $28.312bn |
| Operating income | $2.350bn | $1.520bn | $5.012bn | $3.940bn |
| EBITDA (non-GAAP) | $4.540bn | $2.595bn | $8.967bn | $7.019bn |
| Earnings attributable to common shareholders | $1.848bn | $450m | $3.581bn | $2.377bn |
| Diluted earnings per common share | $0.91 | $0.22 | $1.77 | $1.17 |
| Interest expense | $883m | $791m | $1.788bn | $1.510bn |
Revenue declined largely alongside lower commodity sales, which fell to $4.679bn from $8.108bn in Q2 and to $9.462bn from $16.433bn for the six-month period. Transportation and other services revenue rose year over year in both periods. Reported earnings benefited substantially from changes in derivative fair values and foreign currency movements; these items make period comparisons volatile and are not necessarily indicative of underlying operating performance. The filing does not provide a single GAAP operating-margin figure.
Cash flow, debt and liquidity
- Six-month operating cash flow was $7.305bn, versus $5.473bn; investing cash outflow was $2.333bn, versus $2.120bn; financing cash outflow was $4.770bn, versus $2.605bn.
- Six-month capital expenditures were $2.093bn. Cash and restricted cash totaled $1.090bn at June 30, 2023.
- Long-term debt was $72.530bn, with $6.086bn current maturities and $848m in short-term borrowings. Total assets were $173.942bn and total equity was $64.038bn.
- Net available liquidity was $12.4bn: $11.4bn of available committed credit facilities and $1.0bn of unrestricted cash. Enbridge reported compliance with debt covenants and said less than 5% of total debt was exposed to floating rates after hedges.
- Common dividends paid were $0.89 per share in Q2. The board declared a quarterly common dividend of $0.88750 per share, payable September 1, 2023.
Material changes and management commentary
- Q2 common-shareholder earnings increased by $1.398bn year over year; management attributed most of the increase to infrequent or non-operating factors, especially derivative fair-value changes. For the first half, the $1.204bn increase likewise reflected substantial non-operating effects, including derivative gains, partly offset by a $638m realized loss from terminating Canadian Mainline foreign-exchange hedges.
- Liquids Pipelines EBITDA increased to $2.451bn in Q2 from $1.818bn, supported by higher Mainline throughput, increased ownership and volumes on certain pipelines, and currency translation. Mainline average throughput ex-Gretna was 3.0 million barrels per day, compared with 2.8 million.
- Gas Transmission and Midstream Q2 EBITDA declined to $1.042bn from $1.119bn, mainly due to reduced DCP earnings and lower commodity prices. Gas Distribution and Storage Q2 EBITDA was $367m versus $417m, with higher costs among the reasons for the decline. Energy Services improved to $22m from a $177m loss, but results remain market-dependent.
- Enbridge acquired Tres Palacios gas storage in April for US$335m. It also agreed to acquire interests in Aitken Creek gas storage for $400m plus specified adjustments; closing was expected later in 2023, subject to approvals and other conditions.
- Management said financing activities and liquidity were expected to cover current capital projects and operating needs for about 12 months without capital-market access if markets were restricted or unattractive. The current financing plan did not include additional common-equity issuance. No consolidated earnings or EPS guidance figure is stated in the provided filing text.
Outlook, risks and contingencies
- Enbridge reached an agreement in principle with Mainline shippers for a seven-and-a-half-year tolling settlement through 2028, with interim tolls effective July 1, 2023. It remains subject to regulatory and other approvals; the company expected to file it with the CER in October 2023. Management said the expected financial outcome was in line with previously reported results after accounting for the provision, inflation adjustments and higher volumes.
- The Bad River Band Line 5 case resulted in a June 2023 court order requiring approximately $5.2m in past-trespass damages and ongoing quarterly payments estimated at about $400,000 annually while trespass continues. The order requires cessation of Line 5 operations on affected tribal parcels without valid rights of way by June 16, 2026. Enbridge appealed, and the Band cross-appealed.
- The Michigan Attorney General’s Line 5 easement case remains subject to appellate proceedings. Regulatory toll and rate matters, including the Canadian Mainline, Lakehead, and Enbridge Gas proceedings, also remain relevant.
- Other risks include commodity and foreign-exchange movements, interest rates, project costs and timing, regulatory approvals, litigation, and access to capital. Management reported no material modification to the risk factors in its 2022 Form 10-K.
- Commercially secured projects include gas transmission expansions and offshore wind projects, with disclosed expected in-service dates ranging from 2023 through 2028. Costs and schedules remain estimates and subject to approvals and other uncertainties.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring operating performance versus derivative, foreign-exchange, settlement and other unusual items.
- Regulatory approval and final terms of the Mainline toll settlement, and any resulting toll adjustments.
- Developments in the Bad River and Michigan Line 5 cases, including potential operating restrictions, relocation timing and additional costs.
- Debt maturities, borrowing costs, capital spending and whether liquidity remains sufficient as projects advance.
- Completion, purchase adjustments and expected contributions from the Aitken Creek acquisition and the disclosed growth projects.